Chapter 3 Process Costing JobOrder v Process Costing

Chapter 3 Process Costing

Job-Order v. Process Costing Job-Order Costing Process Costing • Many jobs are worked on • A homogeneous product is during each period, with produced on a continuous each job having different basis or for long periods of production requirements. time. • Costs are accumulated by job. department. • The job cost sheet is the key • The departmental production document for accumulating report is the key document costs. showing the accumulation and disposition of costs. • Units costs are computed by • Unit costs are computed by department on production job on a job cost sheet. reports.

Problem Information

Problem Information (Continued)

Calculation of Equivalent Units Beginning Work-in-Process Inventory: Physical Units X 100% = XXX Started and Completed in Current Period: Physical Units X 100% Ending Work-in-Process Inventory: Physical Units X Percent of work completed in the current period Equivalent Units of Production = XXX

Equivalent Units Illustration - Mixing Materials Beginning WIP: 10, 000 x 100% Conversion Costs Beginning WIP: = 10, 000 100% Ending WIP: 20, 000 x 100% Equivalent Units 100% = 10, 000 Started & Completed: 50, 000 x 10, 000 x = 50, 000 x 100% = 50, 000 = 20, 000 Ending WIP: 20, 000 x 50% = 10, 000 80, 000 70, 000

Equivalent Units Illustration –Mixing (alternative approach) Materials Conversion Costs Units Completed: 60, 000 x 100% Ending WIP: 20, 000 x 100% Equivalent Units = 60, 000 = Ending WIP: 20, 000 x 50% 20, 000 80, 000 x 100% = 60, 000 = 10, 000 70, 000

Cost Per Equivalent Unit (EU) of Production Cost for Component (include costs carried forward from beginning WIP) Equivalent Units of Production for Component = Equivalent Unit Cost for Component Note: Equivalent units and cost per equivalent unit are often computed for direct materials and conversion costs (direct labor & manufacturing overhead). Conversion costs may also be calculated separately.

Cost Per Equivalent Unit Illustration Mixing Materials $18, 000 + $142, 000 = $2. 00 80, 000 EU Conversion $31, 200 + $248, 800 = $4. 00 70, 000 EU Total Equivalent Unit Cost: Materials Conversion $2. 00 4. 00 Total EU Cost $6. 00 See Direct Material, DL, & MOH Journal Entries on Page 84

Costs Accounted For Transferred Out: Transferred Out EU x Cost Per EU Cost in Ending Work-in-Process Inventory: Ending WIP EU x Cost Per EU = XXX XXX Note: Total cost is computed for direct materials and conversion costs (direct labor & manufacturing overhead). Conversion costs may also be calculated separately.

Costs Accounted For Illustration - Mixing Transferred Out: 360, 000 EU x $6. 00 Cost in Ending Work-in-Process Inventory: Materials: 20, 000 EU x $2. 00 Conversion: 10, 000 EU x $4. 00 Total Cost $40, 000 80, 000 $440, 000 See Transferred In Journal Entry on Page 84

Equivalent Units Illustration - Packaging Materials Beginning WIP: 15, 000 x 100% Conversion Costs Beginning WIP: = 15, 000 100% Ending WIP: 5, 000 x 100% Equivalent Units 100% = 15, 000 Started & Completed: 55, 000 x 15, 000 x = 55, 000 x 100% = 55, 000 = Ending WIP: 5, 000 x 40% = 5, 000 75, 000 2, 000 72, 000

Equivalent Units Illustration – Packaging (alternative approach) Materials and Transferred In Conversion Costs Units Completed (includes 60, 000 transferred in from Mixing): 70, 000 x 100% = 70, 000 Ending WIP: 5, 000 x 100% Equivalent Units = 5, 000 75, 000 Ending WIP: 5, 000 x 40% = 2, 000 72, 000

Cost Per Equivalent Unit Illustration Packaging Materials Conversion $10, 500 + $49, 500 = $0. 80 75, 000 EU Transferred In $13, 500 + $83, 700 72, 000 EU $92, 250 + $360, 000 = $6. 03 75, 000 EU Total Equivalent Unit Cost: Materials Transferred In Conversion $0. 80 6. 03 1. 35 Total EU Cost $8. 18 = $1. 35

Costs Accounted For Illustration - Packaging Transferred Out: 572, 600 70, 000 EU x $8. 18 Cost in Ending Work-in-Process Inventory: Materials: 5, 000 EU x $6. 83 Conversion: 2, 000 EU x $1. 35 Total Cost $34, 150 2, 700 36, 850 $609, 450

Production Report Format Quantity Schedule and Equivalent Units to be accounted for: Beginning work in process Started into production Units accounted for: (compute equivalent units) Transferred out (from beginning WIP & started & completed) Ending work in process Total and Unit Costs to account for: Beginning work in process Started into production Cost Reconciliation Costs accounted for: Transferred out (from beginning WIP & started & completed) Ending work in process